Chapter 5
State Capitalism & the Mixed Economy

Marx’s Capital bears the subtitle Critique of Political Economy to show that it was intended as a critique of capitalist society and of the economic theories arising out of it. The critique is made from the standpoint of the working class, that is, from its place in the production process, on which the capitalist mode of production and its laws of movement rest. When workers won the ten-hour day, Marx hailed this as a victory of the ‘political economy of the workers,’ implying that the opposition between capital and labor determined not only the real economic processes but political economy as well. As long as the class struggle is fought on the terrain of political economy, it remains within the capitalist relations production. To be done with these relations, the capital-labor relation, and hence political economy, must be abolished.

Up to now the class struggle has been fought on the terms of political economy. To pass beyond this limitation requires a revolutionary transformation and a classless society. As long as this limitation exists, a practical critique of political economy can be but partly successful, since the reproduction of capital involves the reproduction of the class and production relations inherent in it. For its continued existence capital presupposes accumulation, which the class struggle may influence but cannot abolish, non-accumulating capital signals a state of crisis, which will either lead to a revolutionary situation or set the stage for a new phase of accumulation by altering the capital-labor relation, i.e., the relationship between value and surplus value. The drive to accumulate does not preclude periods of stagnation; these must be overcome, however, if capital is not to suffer its demise in social struggles. Until that happens the class struggle of political economy is not only the terrain on which one class gains victory over or meets defeat at the hands of the other, it is also a driving force of capitalist development. The reduction of labor time also implied the transition from absolute to relative surplus value production. The related increase in labor productivity increased surplus value despite reduced labor time, with the result that the proletariat was gradually able to improve its living standards as capitalism continued to accumulate. Since, however, there are also limits to the production of relative surplus value, accumulation remains subject to the capitalist crisis cycle.

In periods of rapid capital expansion, the social contest is restricted to the struggle for higher wagers better working conditions, and a social policy agreeable to the workers. In a bourgeois democracy the economic struggle also assumes political garb to oblige the state to comply with the limited interests of the workers. The work of trade unions in the economic sphere is complemented in the political sphere by the activity of political labor organizations that seek to influence the state. Although the reproduction of capitalist production relations may preclude any fundamental change in society, the state nonetheless still has the means, or so it seems, to intervene in economic matters. The conquest of state power, therefore, commended itself as an appropriate means for transforming society.

For Marx the state was an instrument of class rule, which included state functions that, although they did not directly pertain to securing the existing social structure, were nonetheless dictated by the asocial character of capitalist production. It was part of the functions and tasks of the state to maintain the general conditions of production, which do not necessarily ensue from the compeition among private capital entities, and to safeguard the interests of national capital in international competition. The diversity of state functions gives the appearance that the condition of the state is one of relative independence from capital. Individual capital entities are still subject to the jurisdiction of the state, whose task as an instrument of capital in general is to secure the accumulation conditions of nationally organized capital entities and hence to maintain the exploitative relationship between capital and labor. Since, however, there is no such thing as capital ‘in general’ – it being no more than the totality of individual capitals – capitalist society needs the state to protect the interests of the ruling class.

The relationship between state and capital is based on capitalist relations of production, i.e., exploitation. The state survives on surplus value, whether directly or indirectly appropriated. The interests of the state, even in its condition of relative independence, are identical with the interests of capital. The state assumes exploitation and hence class relations: In the Marxian sense, therefore, socialism implies not a socialist state but in fact the abolition of the state as a social institution.

Since the state has a share in the total social surplus value, surplus value is distributed not only by way of capitalist competition but also by political means. Placing checks on state appropriation of surplus value has always been one of the aims of bourgeois politics. Cheap governments mean better chances for accumulation. Still, as capital accumulated the state’s share in social surplus value also increased: the means of control over the potential domestic enemy had to be expanded, while imperialist competition absorbed ever growing amounts of surplus value. But since capital accumulation also means concentration and centralization, and competitive capitalism is thereby transformed into monopoly capitalism, as a result, it becomes more and more difficult to establish all average rate of profit and hence to effect the allocation of output by means of the market alone, although it is this market allocation that serves as the lifeline ensuring the harmony of individual capital entities with total capital. More and more the task of allocating surplus value became the object of state interventions in the economy.

It was this situation which at the turn of the century produced a veritable epidemic of notions about a state-monopoly economy for which boundless possibilities were proclaimed or which, on the other hand, was declared to contain the seeds of its own destruction. For Rudolf Hilferding, for instance, the capitalist concentration process was tending ultimately toward a ‘general cartel’ in which industrial capital and bank capital would be fused, laying the necessary foundations for central economic planning. The abolition of competition by finance capital would bring about permanent economic equilibrium, and capitalist crises would be no more. State control, i.e., the shouldering of the economy by the state, would then complete the transformation of capitalism into socialism. Since, however, the bourgeois state is the instrument of capital and abolition of competition at the national level is accompanied by stepped-up competition internationally, from Hilferding’s theory, which was otherwise generally accepted, Lenin drew different conclusions. For him modern capitalism represented the marriage of the state with finance capital, and that was the situation which had to be overcome in order to accelerate the advent of the social revolution fermenting in the process of disintegration imperialism had engendered a new state, its roots planted firmly in the dictatorship of the proletariat, would then proceed to make a socialist economy a reality.

Although their points of emphasis differed, for Lenin as for Hilferding, the state was the vehicle whereby the transition from capitalism to socialism would be effected. The terms ‘state capitalism’ or ‘state socialism’ each referred to a situation existing within capitalist society and preceding a socialist revolution. Elements of state capitalism, so went the argument. evolved in contradiction with bourgeois society, and were hence to be viewed as symptoms of disintegration. They signalled the abolition of private capital within a private capitalist economy and reflected both the dynamic movement of the productive forces relative to static property relations and the growing need for deliberate, conscious socialization of production. But to achieve this to transform capitalism shot through with state-capitalist elements into socialist society – private ownership of the means of production, and hence wage labor, would have to be abolished.

One must keep in mind the original distinction between state capitalism and socialism, that is, between the tendency, unfolding within capitalist society, toward an increasing state production of surplus value and state interventions in the market, on the one hand, and on the other, socialist revolution, which would abolish the capital-labor relationship and effect the transition from a market economy to an economy based on social needs. Even in the evolutionary conception of reforming, state capitalism was supposed to transform itself by means of its own quantitative expansion into the qualitatively new state of socialism. For revolutionary socialism state capitalism was only a modification of capitalist production relations that altered nothing in its antisocialist character; capital had to be abolished in all its forms.

Initially these were only speculations about the future, since neither state capitalism, as a dominant form of society, nor socialism existed. They gained a measure of timeliness first with the Russian Revolution, which found itself confronted with the problem of building socialism. Lenin observed rightly enough that the socialist movement had not dealt seriously with the question of the actual building of socialism, nor indeed could it have done so, since it was impossible to foresee under what specific conditions the social revolution would be achieved. One had, therefore, to start out from the situation as it was given, which in the case of Russia, of course, meant a situation of underdeveloped capitalism. Consequently there could be no thought initially of socialization of the means of production or of the conditions of production, in any event not for the peasantry, who were crucial to the revolution; for the time being one could only make use of state power to accelerate the pace of industrialization, as it alone was the means by which the material conditions for socialism would be created. However, Lenin did not view the Russian Revolution as an isolated phenomenon, for him it was but one aspect of a world-wide revolutionary process. Uneven development among nations was a feature of capitalism, which, of course, detracted in no way from capital’s world dominion. Likewise, the uneven development of socialist countries would not, according to Lenin, impede the establishment of socialism on an international scale; in fact, it should even help matters, since the great mass of the world’s population could secure their own interests only by struggling against imperialistic capitalism. International solidarity was the key to overcoming the backwardness of the underdeveloped countries in order then to proceed to the constriction of a worldwide socialist economy.

Expectations of world revolution aside, the conditions in Russia, inauspicious as they were, remained the Bolsheviks’ point of departure in their formulation of economic policy. With the exception of nationalizing the banks and foreign trade, the Bolsheviks initially did not intend to expropriate capital; they wanted to place it under state control. Lenin’s model was centralised control over production & distribution, as exemplified by the German war economy during World War 1.

But neither capitalists nor workers were pleased with this strategy of reconstructing a state-steered economy. The period of ‘workers’ control’ and capitalist sabotage met an early end and forced the state to expropriate the factories.

We need not go here into all the zigs and zags of Bolshevik economic policy, they are sufficiently well known. We should be clear, however, that this policy was imposed on the Bolsheviks by force of circumstances, and it was only afterward that a theoretical apology was produced for it. ‘Heroic war communism’ as long as it lasted, was thus proclaimed the true way to communism; but it was then downgraded to the status of a temporary expediency after it collapsed. The next stage, the New Economic Policy, which partially restored the market, was regarded, at least by Lenin, as a step backward from a consistent policy of socialization, although at the same time it was considered an unavoidable transitional phase from capitalism to communism. Soon, however, it appeared to be obstructing this transition and even to be calling into question Bolshevik state power as a necessary prerequisite for it. The solution to the problem lay, it was hoped, in the sacking of the New Economic Policy and the forced collectivization of agriculture, which was then to be placed under state control. Only then did it become unmistakably clear where the theory and practice of Bolshevism could lead.

The consolidation of the new social economic relations, which have taken their place in history under the name of Stalinism, was regarded as a stage along the way from capitalism to communism and was called socialism. Socialism was a transitional society, it was argued, and as such would still be plagued by many of the features of capitalism; however, it anticipated many of the characteristics of communism as well. In the list of capitalist features that had not yet been overcome were the existence of the state, the social division of labor, and unequal distribution, justified on the basis of the nonequivalents of work performed. What distinguished socialism from capitalism was, first, the abolition of private ownership of the means of production and, second, economic planning. Full communism presupposed world revolution, but a real possibility existed for the building of socialism, at least in each country. Not to be identified with either capitalism or communism, socialism was a new social order that could lead to communism, since socialization of the means of production and conscious control of production and distribution made a revision to private capitalism impossible. While in Marxist theory it was the producers themselves who controlled the means of production in order to put them to use socially, in Bolshevik theory it was the state, as guardian of the interests of the producers which held the reins of power over the means of production and thus over production and distribution. The theory of the political party as representative of workers’ interests in the social revolution was now being applied to socialism. The means of production kept the attributes of property but had now become state property, and presumably later would become social property. The step from private property to state property was supposed to represent the transition from capitalism to socialism.

A new type of society had undoubtedly come into being.
Although not communist according to traditional socialist conceptions, it was also not capitalist in the traditional sense. Socialism had always implied the end of private capital, and state control over the means of production laid the groundwork for that. Production relations are social relations, and in the historically unfolding relationship between capital and labor, it had been workers against capitalists. Accordingly the abolition of this relationship looked like the end of capitalist relations of production as well, from the standpoint of the capitalists who had been expropriated by the state, there was no doubt, at any rate, that the new social order was identical with the end of capitalism, whatever name, socialism or communism, might be given to it.

From the workers’ standpoint, however, essentially nothing had changed. The means of production, now state property, still elude their grasp. The producers are still wage laborers and still have no influence over production and distribution. The how and what of production are still decisions beyond their control, to be made by state institutions, the self-proclaimed caretakers of the interests of society. But society remains divided into a group of persons organized under the state who control the conditions of production and the mass of the population, which must follow their directives. Thus the relations of production remain class relations, in which those holding privileged positions by virtue of their control over the state have assumed the functions of the expropriated bourgeoisie.

For the expropriated bourgeoisie this new type of society, characterized by state control over the means of production, is state socialism or socialism pure and simple; for the workers, however, the capital relationship still persists and is fittingly described by the term ‘state capitalism', although ideologically it tries to pass itself off as socialism. The expropriation of private capital distinguishes state capitalism from the state-capitalist features already discernible within capitalism. State capitalism, disguised as socialism, presupposes a revolutionary transformation from private capitalism. The state-capitalist tendencies that begin to emerge within traditional capitalism do not evolve gradually into state capitalism; a revolutionary abolition of private capital is required.

The de facto abolition of private capital gives rise to the erroneous assumption that socialization and state appropriation of the means of production are one and the same thing. But according to socialist theory, the state is an instrument of class rule, and therefore in a classless socialist society it should become superfluous. Those central authorities still necessary would perform only technical and organizational, not state, functions and would remain dependent on the decisions of the producers. This conception does not fit the state-capitalist system. Under ‘socialism’ it is the state alone which makes political and economic decisions to fend off the internal and external perils yet remaining along the path toward communism. The state in the traditional sense would disappear only in the far distant future, after the world revolution had been accomplished and a communist economy established throughout the world.

In ‘socialist’ practice it is the state and the state institutions
created by and subordinate to it which control production and
distribution. The state is shaped by the political party in possession of state power, that is, by a privileged stratum of society that believes itself capable of representing the interests of society as a whole and able to do what is needed to realize those interests. Its existence and its power of decision over society and its development presuppose control over how total output will be allocated among the producers, state institutions, and the requirements of expansion, i.e., the needs of social reproduction. The wage system, taxation, and the administrative manipulation of prices place a surplus product in the hands of the state; or in other terms, the producers are deprived of control over their surplus labor, which the state appropriates. Surplus labor, which under capitalism appears as surplus value, is thus appropriated directly, not by the exchange of goods, although the wage nature of labor sustains the illusion that exchange relations still exist. Since, however, the ‘political economy of the workers’ is abrogated under “authoritarian socialism,” it is the state that continues to determine surplus labor.

Marx himself pointed out that surplus labor is unavoidable, since the needs of society extend beyond the needs of the direct producers. It is not the existence of a surplus product, therefore, which distinguishes capitalism from socialism but how that product is appropriated socially, and that is a question decided by control over production. Under capitalism surplus labor appears as surplus value; its distribution is regulated by competition and modified by monopolization. Since capitalist production is controlled by accumulation, and the latter must take place under competitive conditions, capital is unable to exercise control over surplus value. Accumulation does not depend on capitalists but on the mass of surplus value, which to them is an unknown quantity, in relation to social capital. The rate of profit determines the possibility or impossibility of capitalist accumulation. It is therefore not only exploitation or the production of surplus value which weighs on the workers but also capital’s inherent need to expand; however, from time to time this need cannot be met, and the very existence of the worked, the producers of surplus value, is placed in jeopardy. The crisis nature of capitalist production is patent proof that capitalism cannot even satisfy its own ‘social’ needs, to say nothing of genuine human needs.

State-capitalist systems have, at least in theory, the means to regulate consciously what share of social production must go to the workers and the amount of surplus labor to be placed at the disposal of the state. As in capitalist society, the size of the surplus labor depends on the share of total output passed on to the producers. In contrast to capitalism, however, the use of surplus labor is no longer determined by competition and the need to accumulate but becomes the conscious decision of the state. Reproduction can therefore take place independently of capital’s inherent need to expand, it no longer depends on a specific mass of surplus value or a specific rate of profit but may be accomplished with any given amount of surplus product; or, if the surplus product is not sufficient, reproduction may be maintained at a steady level without that necessarily causing a crisis.

On this feasible conjecture rests the belief that a socialist state, which represents the general interests, can shape production and reproduction in such a way that surplus labor becomes a part of necessary labor and is no longer the product of exploitation. The state does only what the producers themselves would do if they acted on their own. They too would have to create the institutions and facilities proffered them by the state; it follows ‘logically,’ therefore, that the interests of the state coincide with the interests of the producers.

In a ‘state-capitalist model,’ moreover, in which the state is the sole executive organ for society’s needs, its functions would no longer be state functions; the system would then cease being state capitalist. In the present state-capitalist countries, the state, however, determines social relations; it sets itself apart from society in order to impose its will on it. It is obvious that the will of the state should be identified with the needs of society, if only because the state is dependent on it. This dependence forces it to act as a state in the traditional manner, i.e., to employ coercive means to maintain and secure its own material conditions of existence.

The state consists of persons who hold the reins of power,
and hence control production and distribution. Once this situation
exists, social reproduction means re-production of state power as
well; and the growth of social wealth means, of course, the expansion of the power of the state. As time goes on it becomes inconceivable that reproduction could take place other than in the existing social relations, for this would require a fundamental reorganization of the society. The division of society into a minority that determines everything and a majority with no influence signifies a class relation which the privileged strata defend just as obdurately as they have done in other class societies.

This situation has nothing to do with an immutable human
'nature’ which may permit one elite to take the place of another but would. never allow the abolition of class relations; the plain fact is that even in the purportedly ‘socialist’ revolutions of the past, the task of reorganizing society was left to the state, the party, and hence an elite. The rebelling population acquired their political experience within organizational forms that had been shaped by the class nature and political economy of capitalist society and hence could not measure up to the requirements of a classless society. Revolutionary means were used to reformist ends, namely, remain in the hands of the producers; the establishment of a new state with an autonomous power position must be prevented. The experiments of the council communists showed, if only in vague form, the direction the proletariat’s struggle for emancipation must take, although they still lacked the concrete basis on which to bring this about. But whatever the difficulties facing socialism the existing state-capitalist systems have proven that their way, any event, is not the way to socialism.

But is state capitalism a necessary stage of development after capitalism – can it not be avoided? State capitalism did, after all arise in underdeveloped capitalist countries – apart from those countries which fell under the Russians’ sphere of influence as the spoils of war and were trimmed and tailored to conform to the Russian model of state capitalism, with varying degrees of success. All the same, notwithstanding the fact that state capitalism was imposed on these countries from without, they do demonstrate that state-capitalist production relations can be implanted in developed and underdeveloped countries alike. Also, the growing trend toward state intervention in the capitalist countries seems to be pointing the way toward a transition to state capitalism, if not by way of revolution then at least through a perceptible convergence of the two systems.

The uneven development among nations, stressed by Lenin, within the imperialist-dominated world economy has created links between the anti-imperialist national revolutionary movements and the anticapitalist movements in imperialist countries. It has also served to underscore the difficulties, if not the impossibility, of independent capitalist development in the colonies and in other underdeveloped countries. The industrial nations’ head start in accumulation and their monopolistic positions within the world economy seem to preclude capitalist development by the competitive route in the backward and suppressed countries. Subordinated to the profit claims of the major capitalist powers, the way toward independent industrialization and capital accumulation was essentially barred to them. Capitalist development, and its handmaiden industrialization, could be achieved only via the political route of nationalist revolutions; that is, not through the bleak and arduous process of formation of capitalist private property, but as the outcome of the confrontation between monopoly capital and capitalist monopoly.

The Russian Revolution took place in a backward capitalist country with a weak bourgeoisie; indeed, Lenin regarded this as the reason why it was relatively easy to achieve. Being directed against capitalist imperialism, national revolutionary movements were committed to an anticapitalist ideology and, under the influence of Russian Bolshevism, equated their state-capitalist aspirations with ‘Marxist socialism’. Russian Bolshevism was the product of the European labor movement and as such saw itself as a world, not a national, revolutionary movement.

But the revolution remained within national confines and, cramped as it was, became the model other national revolutionary movements followed. The important point here is that this emulation of the Russian experience has been the identifying characteristic of all viable national revolutionary movements since. State control over national production and distribution, the idea the Bolsheviks took from the capitalist war economy, has in any event been the programmatic goal of state-capitalist-oriented countries.

State intervention, a policy forced on capitalism by the war, was used by the Bolsheviks to build up their own economic system, but its subsequent fate has had political and economic repercussions on the further course of capitalist development. The totalitarian state that flowed from the dictatorship of the party became the prototype of the fascist and national socialist movements that put in their appearance in the aftermath of World War I. A totalitarian state may just as well defend an economic system based on private enterprise. Fascism and National Socialism adapted Bolshevik methods and the Bolshevik party-state to defend their own interests as well as those of private capitalist society. In the defeated and economically weaker countries, it looked as if the post-war crisis had called into question the very existence of capital.

Since, however, the Russian Revolution did not spread across Europe, the crisis situation required national solutions within the framework of the capitalist world economy. The national solution, like the war economy before it, could not be left to the automatic workings of the market but required major interventions in the economy, which of course meant expanding and strengthening the powers of the state.

When the postwar crisis developed into a general crisis of capitalism rather than into a new worldwide boom, the bourgeois liberal or ‘democratic’ countries were themselves forced to employ extreme state measures to cope with the social hazards created by the crisis. The fascist countries pursued the path of Bolshevism, and the ‘democratic’ nations followed suit to help embattled capitalist production relations through the crisis. However, in the democratic states there was no need to put an end to the ‘political economy of the workers’ inasmuch as they were able to employ other means to put through the economic policies they thought necessary. The fascist tendencies in these countries were thus undercut and could not exploit the crisis for their own ends. State interventionism thus ranged over a wide field: from the direct takeover of the means of production by the Bolsheviks, to fascist use of the state to sustain capitalist production relations, and finally to state steering of the business cycle by the indirect means of monetary and fiscal policies.

The ‘purely economic’ anticyclic measures of the democratic countries were, of course, also part and parcel of fascist economic policy; but in the party dictatorships of the totalitarian states, they were complemented by political action in the domestic sphere as well as in foreign policy. Dictatorship as a means to carry on capitalist production relations is obliged to subserve the expansionist needs of state capital, with new imperialist conflicts the inevitable result. It was the repercussions of fascism on foreign policy that troubled the victors of World War I, not its domestic policies, which enjoyed their silent approval. Although capitalist economists now saw that the market mechanism was not capable of coping with the crisis, there was no question of their sitting back passively as they watched social unrest grow after the war, since the Bolshevik experiment and fascism were practical proof enough that under very different conditions (and not only under socialism, i.e., state capitalism), the effects of crisis, e.g., unemployment and idle means of production, could be combated if the state were willing to take the appropriate measures.

According to the market theory, which though false is nonetheless needed by capital, crisis was rooted in a lack of effective demand, which in turn had its origins in capitalist growth itself. In this view, of course, consumption determines production, from which it follows that an increasing saturation of consumer needs must result in a slackening of production and hence a decline in investments. The consequence is unemployment and idle capital. In bourgeois theory the market and prices function as equilibrium mechanisms, in which each production factor is guaranteed its share of total production, accordingly the dilemma of crisis cannot be resolved through redistribution lest this be at the cost of capital returns, which were already on the decline, further undercutting the propensity to invest. The market, therefore, cannot be expected to generate the demand required for full employment; that demand, rather, must be created from without, through state-induced public demand, and added to general demand.

State-induced public demand could not, however, be financed by taxation, since this would have reduced market demand, already insufficient, even more. Thus, as in wartime, deficit financing, the expansion of state credit, was the answer. By means of government loans and their use for public works, idle capital was brought back into the capitalist circulation process to boost total production. The result of this, of course, was a growing state debt, which, however, was not considered a burning problem as long as total production grew at a faster rate than the interest burden on it.

In contradiction to bourgeois consumption theory, which projects the inevitable collapse of the market system, state economic intervention by way of induced public demand was seen as an anticyclic policy that would maintain – or restore – market equilibrium. Yet it is patent that capital accumulation precludes equilibrium between supply and demand in terms of an equivalence of production and consumption. In a capitalist economy good times with full employment are possible only as a result of capital expansion in pursuit of profits. When there is no accumulation, insufficient demand is a permanent condition. It is not enough, therefore, merely to expand production and to adjust demand to supply. For accumulation to take place, the profitability of capital must be improved. Its own static theory notwithstanding, in the real economic process bourgeois economics is also obliged to propose state-induced demand to generate an additional demand in order to expand the market.

State economic policy was supposed to prevent the major economic ups and downs, i.e., crises as well as booms, which undermine the economic equilibrium.

In addition to the manipulatory measures of expanding or contracting public demand, monetary policy, i.e., the expansion or contraction of credit by means of increasing or reducing the money supply and by altering interests rates, was supposed to have a regulatory effect on the economy. The instruments of state intervention in a modified market economy are too well known to require further discussion here, but together they spell what has come to be known as a ‘mixed economy,’ vaunted as the solution to the problem of capitalist crises.

The idle capital made available to the state by means of loans represents an already existing surplus value that had not been put to use as further profit-generating capital. It puts idle people and plant to work; the resulting product is not sold on the market but matches the value of the state’s loans. In this way money capital is ‘consumed’ and hence can no longer be regarded as a part of the mass of surplus value available to capital for purposes of accumulation. Here capitalist society produces not in accordance with its own needs but in accordance with its own false theory, i.e., it produces for consumption, if only public consumption. In that event, however, this type of production is no longer capitalist production, but the employment of an anticapitalist mode of production possible only in exceptional cases, never as the rule.

The expansion of state credit, like any other form of credit expansion, carries with it an inflationary trend which, however, can to some extent be controlled at the price of limiting state-induced production, a general contraction of credit, and the cooling-off effect this has on economic activity. A ‘mixed economy,’ therefore, tends toward its own dissolution, and capital is once again placed at the mercy of its own crisis cycle. The theory that boasted of having mastered the problem of crisis itself has a new crisis on its hands in which the instruments of a mixed economy are not only of no use but indeed even help to deepen the crisis. Instead of achieving full employment, even with its inflationary tendency, by monetary and fiscal policies and public spending, there arise new problems to be dealt with: rising unemployment, precipitous economic decline, and a rising rate of inflation. Inflation can be checked, but only at the price of more unemployment; and if one tries to remedy unemployment, the price is more inflation, which undermines both the national and international economies. In the face of this dilemma, the proponents of a limited economy came up with the idea of using more direct means to control the business cycle, i.e., means such as are used in the state- capitalist countries. Not without some justification, therefore, has this been referred to as ‘creeping socialism’ in capitalist circles, which equate state capitalism with socialism.

State-induced production is also referred to as nationalization, and accordingly state participation in the economy and nationalization of private enterprises give the appearance of being ‘socialist’ measures capable of effecting a fundamental, if slow, transformation of society. As more and more industries are nationalized, the means of production, now state property, would belong to the nation and the market economy would come to an end without revolution. This thought is given further sustenance by the fact that whole industries have, indeed, been nationalized, although in the capitalist market economies where this has taken place, it has so far altered nothing. In the advanced capitalist countries it has for the most part been unprofitable industries or factories which the state has taken over or subsidized, or new enterprises that could only be started with state support and that often gave rise to some intricate concoctions of public and private capital. Still, in these countries private capital remained dominant, the element around which state economic policy turned.

Just as the destruction of capital can contribute to a new upswing by forcing capitalist reorganization, public spending, which rests on unprofitable production, may be seen as a countervailing tendency to capital’s own inherent tendency toward disintegration. Capital expansion implies capital destruction; still, every new accumulation phase must surpass the previous one if a renewed upswing is to begin. How long this kind of capitalist reproduction can go on cannot be ascertained a priori from theoretical considerations alone; the answer must await empirical observation once the tendencies working against capitalism’s decline show their ultimate ineffectiveness.

Accumulation, which is a necessary condition for a capitalist economy, cannot be replaced by state functions in a ‘mixed economy.’ Expanding production alone does not generate profit; for production to yield profit it must take place along with, and in spite of, state-induced production if a state of pseudo-prosperity is ever to be overcome in favor of a real boom. If this is no longer possible, sooner or later the crisis-alleviating effect of state-induced production must become blunted and the crisis flare up anew. Any further expansion of state demand would then do no more than add steam to the disintegration of the private sector of the economy, until finally the possibility of any further accumulation would cease to exist. State economic intervention is thus a two-edged sword, and therewith sets its own limits; yet if it stays within these limits, the state of pseudo-prosperity it had been able to achieve must ultimately revert to obvious crisis.

A mixed economy is a token of capitalist decay, not a new form of capitalist production relations, as is the case with state capitalism. The dominant position enjoyed by private capital, the indirect methods used to manage the economy, the restriction of state-induced production to public consumption, and the retention of monopolistic competition – all these things together add up to the fact that in a mixed economy the state is still a state of private property which it is the state’s task to defend. One cannot expect such a state to make the step from mixed economy to state capitalism on its own; yet without this step it must continue to obey the laws of capitalist production, with no chance of really controlling the economy as required. It can let a crisis run its course, or if surplus values reseats are available, it can try to employ stop-gap measures to keep social unrest at a minimum; but it cannot permanently continue to expand profitless production through inflationary state credits without destroying profit-yielding production in the process.

It is of course true that the economic integration of state and capital cannot be reversed. Private capital had ultimately to call on the services of the state if it was to continue to exist, while the state must rely on private capital in exercising its economic functions. Once effected, integration precludes the state’s employing an economic policy contrary to the interests of private capital or its expropriating private capital to thereby assume sole control over the economy. Mixed economies, with or without ‘socialist’ governments, now as in the past are patent proof that in a mixed economy the state still belongs to private capital, which precludes in advance the transition to state capitalism.

It can no longer be maintained that economic management by the state will make for stable capital development or prevent crises; the role of the state, therefore, in a mixed economy is gradually whittled down again to the tasks it has always performed, namely, the use of coercion to maintain existing reduction relations. With state interventions into the market mechanism ineffective, and the inflated state sector (like the state itself) only a burden accelerating capitalist decline, a mixed economy reverts to commonplace capitalism. The very existence of such a swollen state apparatus requires some cutback in state-induced production (if only to secure the state’s own share in the surplus value), and pursuant to this end, the state begins making decisions meant to increase profit and promote accumulation.

At this point the struggle over economic policy sharpens; capital demands an end to all state policies cutting into surplus value, while the victims of these policies call for enlarging the economic powers of the state in the direction of state capitalism. But since state capitalism requires a revolution, that form is not precisely on the order of the day. In the capitalist countries revolutionary Marxism-Leninism is today totally reformist and, moreover, sees itself as such; it has for the time being shelved the goal of state capitalism, not only to protect the existing state-capitalist systems from convulsions but also to meet the ever greater needs of the communist party bureaucrats. Not only, then, is the possibility of state capitalism itself limited by the existing power relations between the classes domestically and among nations worldwide; we even find that state-capitalist principles become adulterated within state capitalism itself and within the ‘socialist’ movements that have cast their lot with it.

State capitalism, clad in the banner of ‘socialism,’ appeared to be fundamentally irreconcilable with the capitalist world. But for reasons that we shall not go into here, capitalism was no more able to destroy state capitalism than state capitalism was able to remake the world in its own image. The coexistence of the two systems was a fact long before it was accepted and put to practical advantage by either side. Just as perfect competition has always been but a theoretical construct and has never described capitalism as it really existed, so too is pure state capitalism an abstraction having little to do with historical state capitalism. In either case reality provided only a rough approximation of the features which theory had mapped out in relief, and even these rough approximations varied in appropriateness depending on the broader setting in which the systems were situated. Because state capitalism could not isolate itself from the world market and from world politics, it was deprived from the outset of an intended feature that distinguished it from other systems, namely, economic planning, which, although attempted, remained under the influence of processes taking place in the capitalist world around it. Just as the production ‘planning’ of individual firms stands in sharp contrast to the anarchy reigning in the economy of the capitalist system seen as a whole, under state capitalism national planning takes place within a planless world economy, and its effectiveness is made as questionable on that account as the ‘rational’ efforts of the individual entrepreneur are undermined by the uncontrollable market economy. Thus even state-capitalist nations come under the sway of capitalism’s economic cycles, and for this reason they too are interested in maintaining a relative stability on the world market so as not to jeopardize beyond measure their own plan-based economies.

But though there may, indeed, be a general desire for social stability, this is not enough to abolish the laws of motion of capitalist society. The willingness to coexist peaceably alters nothing in the expansion needs of capital and thereby in the imperialistic rivalries between different capitalist systems. The expansion of state capitalism diminishes the expansion of private capital, just as private capital accumulation has an unavoidable influence on planning in the state-capitalist system, and indeed even obliges it to yield to the general need to accumulate. The crisis situation only brings out these contradictions more sharply. Coexistence, therefore, does not mean the integration of the different social system’s into one world economy in which all nations participate equally and equitably, but a condition in which existing contradictions have not reached such a critical extreme that they must erupt in violent upheaval. Neither the seemingly ‘socialist’ tendencies of state economic interventions in the capitalist countries nor the capitalist methods and practices of the state-capitalist countries are able to reconcile the two systems and bring about cooperation between the two in their common interest. It has been the temporary possibility of peaceful coexistence, or the temporary impossibility of belligerent confrontations, that has been responsible for the illusion that the economic interests of the two systems could be fulfilled through joint exploitation of the world proletariat.

But joint exploitation is not so much the issue as the dividing up of the ever diminishing loot between the capitals of all descriptions. In this struggle national boundaries are transgressed, and social formations themselves are transcended. The surplus product of the state-capitalist system searches for its enlargement in the surplus value of the capitalist system, while the countries producing surplus value share in the surplus product of state capitalism; the distinction, therefore, between surplus product and surplus value loses all sense and is no longer tenable, at least as far as the world economy as a whole is concerned. While on the one hand the state-capitalist systems, which have undergone their own separate process of integration, are again beginning to show cracks, the common front of capital against state capitalism is also coming apart at the seams. The socialist bloc, envisioned as a second world market, is being engulfed by the capitalist world market, and the political unity of the state-capitalist systems is being undermined in the process.

State capitalism is as little able as capitalism to eliminate national and hence imperialist rivalries. Since no world state exists, the state is tied to the nation and the ruling class is bound to the state. This situation in no way alter either imperialists or the multinational character of many capitalist corporations, since these forms of capitalist internationalism are only means through which certain nationally organized capital entities exercise their power and enlarge their profits. In the state-capitalist nations the national state is the basis on which the new class rules; and state capitalism remains an economy bound to national interests. Were the state-capitalist countries really socialist, they would close ranks and abolish the nation-state both politically and economically. But as things stand now, relations among the state-capitalist countries are essentially the same as those existing in the capitalist world. Common interests must take a back seat to national interests. Differences in political and economic power engender relations of exploitation and dependency, which continue to reproduce themselves without end. Just as in the capitalist camp the stronger power subordinate the weaker, and though supranational institutions are to be found in both capitalist and state-capitalist countries, the changes they have been able to effect in this regard have been negligible. In the rivalry between capitalist and state-capitalist power, newly acquired spheres of influence must not only be defended but also expanded. State capitalism itself embarks on an imperialist course in no way inferior to capitalist imperialism except that it avails itself of socialist ideologies. Even this is nothing new, both world wars furnishing prior examples.

Despite their different political and economic forms, capitalism and state capitalism are united in opposition to the interests of the world proletariat. The capital-labor relationship is still the hallmark of all existing production relations. The equation of state ownership with socialism implies no more than the rule of a new class that, in the interests of self-preservation must close its mind to socialism. The hopes attached to the welfare state of the mixed economy, as well as those engendered by the ‘socialist’ ideology of state capitalism, have been unmasked as illusions by the real development of capital. Although illusions may be dispelled, the conditions that engendered them remain. In both capitalist and state-capitalist countries, the state apparatus can exercise its power without the consent of the worked. But it cannot arrest the decline of capital or eliminate crises, nor can it abolish the class struggle.

The abolition of the ‘political economy of the workers’ in the state-capitalist countries has set the stage for a class struggle that must inevitably turn directly against the state, and which therefore can no longer achieve its more far-reaching socialistic aims within the confines of state capitalism. Even though a mixed economy cannot itself develop into state capitalism, it is still able to use the state to intervene in economic struggles in order to safeguard the continued existence of capital. Indeed, on this account there still exists the danger that the workers will once again limit their political demands to a ‘workers’ state,’ despite the experiences of the state-capitalist countries, in order to carry the day against their capitalist adversaries. Although for the moment this danger is not acute, it remains implicit in the revolutionary ideologies social democracy and Bolshevism have generated over the past century. If these ideologies continue to prevail in the social struggles we can expect in the future, it is fair to say that the impending revolution already contains the seeds of counterrevolution within it. To abolish capitalism, therefore, the first task is to make Bolshevism a thing of the past once and for all.